Euro zone inflation shows biggest monthly fall in January

A picture illustration taken with the multiple exposure function of the camera shows a one Euro coin and a map of Europe
Thomson Reuters
By Martin Santa and Robin Emmott

BRUSSELS (Reuters) - Euro zone consumer prices fell in January at their fastest ever pace on a monthly basis, dragged down by a slump in the cost of non-energy industrial goods, keeping annual inflation well below the European Central Bank's target.

Inflation rate in the 18 countries sharing the euro dropped by 1.1 percent in January when compared with December, keeping the annual inflation rate at 0.8 percent for a second month in a row, the EU's statistics office Eurostat said.

The annual inflation rate was revised from 0.7 percent, which Eurostat released in a flash estimate on January 31.

Economists polled by Reuters expected consumer price inflation to accelerate slightly to 0.9 percent in January, a level that is still well below the ECB's target of close to but below 2 percent.

The annual rate was influenced by a 1.2 percent decline in the highly volatile prices of energy, while the monthly decline was hit by a 3.9 percent fall in prices of non-energy industrial goods and a 0.4 percent drop in the price of services.

The ECB, which cut its key interest rate to a record low of 0.25 percent in November, is expected to stay put until mid-2015 unless money market rates rise and the euro strengthens.

Although ECB President Mario Draghi said the central bank had not changed interest rates this month because of the need to have more information about the economic recovery, markets are still on alert for a move in March, when the updated inflation outlook is due.

In January, euro zone members Greece and Cyprus were stuck in deflation. Only three countries in the bloc, Estonia, Latvia and Slovakia, saw consumer prices rising month-on-month in January.

Italy, the euro zone's third largest economy, showed a 2.1 percent month-on-month decline, the biggest drop from among all euro zone members.

In Germany, Europe's largest economy, consumer prices fell by 0.7 percent on the month, keeping the annual inflation rate steady at 1.2 percent, with both figures coming below expectations.

Eurostat will publish the euro zone's February inflation flash estimate on Friday.